Trusts Law

Constructive Trust

Imagine you own something valuable to you, like a new lawn mower. One day, your neighbor borrows it, but they like your lawn mower so much that they won’t return it. So, you take your neighbor to court. The judge may create a constructive trust for the lawn mower until your neighbor gives it back.

This article explains constructive trusts. State trust laws vary and are quite complex. Contact an attorney near you with experience with constructive trusts if someone takes your property. An experienced attorney can give you legal advice about your unique situation and protect your rights.

What Is a Constructive Trust?

A constructive trust isn’t a traditional trust. It’s instead a legal tool judges use to solve a property dispute. A court will create a constructive trust when someone unfairly takes ownership of property. The unfair ownership can be because of a mistake or a malicious act.

We generally use traditional trusts to achieve long-term goals. For example, to avoid probate or protect our assets. Constructive trusts are short-term arrangements. The court could order the property to be put in the trust while it’s transferred back to the rightful owner.

Constructive trusts are meant to prevent unjust enrichment. “Unjust enrichment” is when someone benefits at someone else’s expense without giving anything in return. Let’s go back to the lawn mower example. You bought the lawn mower, but your neighbor benefits from mowing his lawn while your grass keeps growing.

Constructive trusts are created by “the operation of law.” That means you don’t have to follow the usual formalities of creating a trust, like picking a trustee and drafting and signing documents.

How Does a Constructive Trust Work?

The first step in creating a constructive trust is filing a legal action. The rightful property owner typically brings the action against the person who is unfairly benefitting.

Cases typically involve the transfer of property for one of the following reasons:

  • Mistake
  • Breach of fiduciary duty
  • Undue influence
  • Coercion or duress
  • Fraudulent misrepresentation
  • Embezzlement
  • Breach of trust
  • Commission of a crime, like theft or homicide

The court can create a constructive trust if it finds that one person unfairly benefits from the property. The person unfairly benefitting would transfer the property to the trust. If returning it is impossible, they must pay the trust the property’s value.

In our lawn mower example, you’re the legal owner of the lawn mower and would sue your neighbor. The judge could create a constructive trust. Your neighbor would then have to put the lawn mower in the trust until he returns it to you. But suppose your neighbor sold your lawn mower. In that case, your neighbor would have to pay the trust the value of the lawn mower.

Constructive Trust Example

Our lawn mower case is a simple example. But constructive trusts can be helpful in more complicated situations.

Suppose Ann steals $500,000 from Bob. She then uses the money to buy a house. Bob sues Ann and wins. The court orders Ann to create a constructive trust. Ann then must put the house in the trust. The trust is to protect the house for Bob until Ann transfers the house title to Bob. Bob will receive the house even if it increased in value.

But what happens if the house lost value? Suppose Ann bought it for $500,000, but it’s only worth $450,000 when Bob sues Ann. In that case, Bob could request money damages of $500,000 from Ann instead of getting the depreciated house.

Contact a Lawyer for Help

A constructive trust can be helpful if someone takes your property unfairly. But you’ll need a judge to create one. An experienced attorney can give you legal advice and represent you in court.

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